U.S. Department of Energy Energy Efficiency and Renewable Energy

Interaction of State and Federal Incentives

Because the amount of the 1603 Grant and the Investment Tax Credit is based on the tax basis of the energy equipment, if the owner receives a rebate or other similar direct subsidy (other than low-interest or discounted loans), such payment will result in one of the following tax consequences:

  • The owner/recipient of the payment will be required to treat the payment as income that may result in additional income tax liability, or

  • The cost basis of the property will be reduced by the amount of the rebate, reducing the value of the federal tax benefits. Similarly, if both a state and a federal income tax benefit are claimed on the same property, the cost basis of the state credit is also typically reduced (note that this can vary by state).